Market Thoughts 6/26/2022
July corn lost 34’2 to finish the week at 750’2, disappointing but arguably not as bad as it felt in the moment. Futures gapped lower Monday night and posted losses all week but held well above the low of 720 from June 1st. July soybeans lost 91’2 to close at 1610’6. Beans have now fallen almost two dollars in the two weeks since nearly making new all-time highs. July spring wheat lost 98’6 to finish at 1070’6, posting huge losses every day and closing right at the weekly low.
You would expect a bombshell negative fundamental development to be responsible for such vicious losses and at this point in the growing season but that doesn’t seem to be the case. Most of the credit is going to a weather pattern that favored up quite a bit between Friday and Monday; removing all of the extreme heat with some improved moisture prospects. Outside markets brought pressure early in the week with energies falling and soybean oil collapsing as soy crush margins continue to nosedive. Northern crops are looking quite good despite the late start with timely rains across Canada and the northern Corn Belt. But again, no single dagger. Our Price Signals had the right idea with Sell Signals on 5/16 for corn and wheat and 6/9 for beans, and our idea then that those were seasonal highs is looking more probable by the day.
So what now? We spoke with a colleague in Indiana on Thursday and it stirred up some unwelcome 2021 memories for us – that region badly needs rain, even with moderate temperatures. It seems probable the market hasn’t realized/reacted to the situation there yet. All four commodities gapped lower on their continuous charts to start the week, a very unusual occurrence (one normally associated with a landmark fundamental development) and it would be unlikely for all of those gaps to remain unfilled. By the end of the week Canola had posted strong Buy signal while new crop Corn had reached an initial Buy signal.
It’s also really helpful to revisit seasonals. We continue to consider 2008 as a solid comparison to 2022 but had abandoned the 2012 comparison a while ago. While 2008 is still useful, we’re less convinced the economic downturn will be anywhere near as severe and with it, the downside for commodities less severe. Last week we mentioned 2021 as an increasingly solid comparison, noting the similarities (at a lower average price). And Matt Campbell with StoneX whom we closely follow recently pointed out similarities to 2011 and we like that analog as well. A few things to consider if the balance of 2022 is to be similar to 2021 and/or 2011:
2011 made a high on June 9th, 2021 on May 7th.
Both proceeded to lose roughly 20% over the next three weeks.
2011 went on to post new highs in August at levels 8% higher than the June peak.
2021 never did make new highs but recovered within 3% of its May highs at one point.
A 20% decline would suggest 615ish for a summer/preharvest low. Recovering to within 3% of its May 16th high would suggest 740ish or higher.
We have limited confidence in the timing and extent of a recovery but do have high confidence that corn will find strong support in the low 600 range.
Strong Buy Signal on S&P 500 – fwiw, had similar strong buy signals at the covid low and during the 2018 correction.