Market Thoughts 6/20/2022
REMINDER: Markets are closed today, will open at regular time tonight.
July corn gained 11’2 to close last week at 784’4 after touching 800 on Friday morning. July soybeans lost 43’4 and ended at 1702, down 82 cents since nearly making new all time highs the week prior. July spring wheat lost another 52 cents to close at 1169’4, its lowest level since late April.
The Fed raised interest rates 75 points last Wednesday in the largest single day rate hike since 1994. This of course followed the previous week’s CPI report showing inflation actually increased in May. In between those two reports, equities continued their descent and are now officially into bear market territory having lost more than 20% from their January peak. Since last fall, we’ve talked extensively about the similarities to 2008 for grains and with stocks now officially in a bear market we’re getting to the point where that analog isn’t flattering anymore. Nat Gas and the Crude complex also posted sizable losses last week and the dollar surged to fresh highs. Given all that, corn performed remarkably well, shrugging off disappointing export sales and focusing instead on strong ethanol bids and plenty of heat in the near term forecast. The implications of drought-robbing yields given already tight corn/bean balance sheets are certainly worthy of risk premium. However the consensus view leans toward low probability for extreme heat/dryness during July. Given recent Managed Money long liquidation, it’s not shocking to see hot/dry forecasts move things quickly higher. But it almost certainly takes the realization of a long and widespread stretch of such weather to keep things supported. In addition to 2008, we mentioned a couple weeks ago that corn is now acting quite similar to 2021 although at a higher price level. Last year, despite major drought/weather issues, corn and beans never did take out their May highs and trended lower all the way into harvest. Spring wheat continues its freefall with beneficial rains falling across the Canadian prairies while basis remains extremely poor. Wheat looks vulnerable to more liquidation/losses as harvest prices are still unusually high (wheat having never been more than $900ish at harvest).
Natural Gas prices in a free fall – down 33% in two weeks
Corn Seasonal Chart – Dec 2021 corn never did take out its May highs despite lots of weather adversity last summer.