Market Thoughts 6/5/2022
Brutal week for corn as the July contract lost 50’2 cents to close at 727’0, the worst weekly loss for nearby corn since May 10-14th of last year. (More below on that.) Soybeans lost 34’4 to finish at 1697’6, somewhat more respectable than corn but the weekly chart did post a bearish key reversal. And then spring wheat…July lost 113 cents to close at 1191’6, having now given up over 200 cents in the past three weeks.
We were certainly wrong about soybean strength being able to prop up corn/wheat last week though beans did perform well with November finally making a new contract high and posting the second highest weekly close of the year. We almost certainly were right though a couple weeks ago in our detailed case for a seasonal top in corn and wheat. Our Price Signals were even more right, posting strong sell signals on May 16th for corn and wheat. Anyhow, as has been the case for the past four years, this is bewilderingly difficult for the northern U.S. farmer - finally have some crop planted and markets immediately collapse.
A few things are driving this. Subject to debate in our backyard but trade is very comfortable that enough corn and wheat acres are planted. Plenty of anecdotal evidence suggests corn acres increased sharply from intentions across the Corn Belt, suggesting a 1-1.5 mln acre loss up here is absorbable. As we mentioned a couple weeks ago, years with planting delays have a strong tendency to post seasonal highs early/during the delay and not eclipse them. The crop usually starts out rated strong with little early drought stress and that almost certainly will be the case this year. Russia and Australia both have large wheat crops on the way. And despite drought stress, Brazilian second corn crop is massive and China is allowing imports from Brazilian for the first time ever as their prices are much cheaper than the U.S.
But most importantly, we are all underestimating the global political will to avoid further expansion of the food crisis. Add to the list of market axioms “don’t be long wheat/corn when the U.N. is trying to broker a wheat trade”. Russia has repeatedly stated they’ll allow safe passage of grains out of Ukraine and sentiment is growing that something will happen. And parallel to this, high level officials all over the world are weighing in on food security almost daily.
That’s what has happened but what happens next? Nearby July corn is actually lower than it was on this date last year (though new crop is much higher). A year ago, July corn futures made a peak in early May followed by a three week 100 cent collapse, remarkably similar to this year. From that point forward, July 2021 corn actually rallied back up and briefly eclipsed its previous highs. Global balance sheets are still tight and despite all the glee around getting acres planted, North American production is anything but certain. Unlike 2008, energy prices continue to rally, providing underlying support. And having just returned from vacation, the economy does not appear at all to be melting down like 2008. Flights were packed, theme parks packed, beaches packed, freeways packed, housing going up in every direction, dramatically different feel than the height of the 2008 crisis. But that said, don’t lose sight of a still incredible marketing opportunity for crop that’s in the ground now. The below charts illustrate how historically high current new crop prices are:
New Crop spring wheat futures easily eclipsed 2008 highs this spring and remain over 200 cents higher than they’ve ever been at harvest.
At 690, new crop corn futures are 90+ cents higher than they’ve been at harvest any year other than 2012.
New crop soybeans are close to 2012’s harvest price and apart from that, are 250 cents higher than the next closest harvest price.