Market Thoughts 9.25.22
Dec corn lost a half cent this week to close at 676’6. It was the second consecutive weekly loss for corn and also an “inside” week with the weekly high and low both landing inside the range of the prior week. Nov soybeans lost 22’6 to finish at 1425’6, down 82 cents from a brief post-report high the previous Monday. Dec spring wheat gained 10’4 and ended at 949’2 to make it three straight weekly gains, though futures closed 34 cents off Thursday’s intra-day high of 983’2.
Spring wheat has followed through nicely on our prediction three weeks ago of a breakout, having rallied more than 100 cents from the time of those comments to the Dec high of 983’2 on Thursday. This week’s gains were fueled largely by Russia announcing referendum votes in four occupied regions of Ukraine and shortly after that Putin announcing activation of reserves for the first time since World War Two. That was about it though for bullish grain news as export sales were terrible, early yield reports seemed reasonable and outside markets once again bludgeoned everything. As expected, the Fed raised interest rates 75 basis points. Somewhat unexpected though was the response to the news as the dollar surged even further into new two-decade highs and Friday saw virtually every commodity, including wheat, get crushed.
Here’s the crossroads grains are at now. Corn and beans have 2012-type demand-rationing level stocks/use projections and that’s certainly supportive. But don’t expect much in the way of further supply-side bullish news over the next couple of months. And row crops head into these next two months higher than they’ve ever been at this time of year apart from 2012 (and then only slightly higher). Both commodities are ridiculously overpriced in the global market, as evidenced by terrible export sales the past two weeks and the situation is getting worse with each “dollar makes new highs” headline. In addition to general inflation turmoil, housing is starting to look more and more like a bubble and the last housing bubble didn’t end well for grains. Late in the day on Friday there were considerable rumors of a coup in China that ousted President Xi. Those appear to be untrue but just the fact that it sounds credible indicates how fragile things are currently. Political turmoil on top of current economic problems in China would be extremely bearish for U.S. grains. And recall that even without any of this occurring/continuing, it still would be unprecedented for corn/beans to rally during next two months from these already high prices.
All of the above coupled with our recent Sell Signals for corn and beans suggests extremely high probability of lower prices into harvest and a decent probability of a major price collapse, spurred by economic events still unfolding.
We haven’t revisited these charts in over a month and worth doing so now, with 2012 added in following the September S&D report. Key takeaway:
All three years saw MASSIVE losses from September forward. ~300 cents (as in $3.00) for both 2011 and 2012 and over 500 cents (!?!?) for 2008.
This occurred in 2012 and 2011 despite extremely tight balance sheets with no unique economic meltdown and despite both years seeing major post-harvest recoveries.
These seasonal comparisons suggests the most unlikely thing to happen would be prices not collapsing.
Surging over 300 points to fresh 20-year highs following the interest rate hike. Somewhat surprising/ominous given the hike had been expected for a long time.
Stunning surge in Median Housing payment/Median income, the result of both skyrocketing home values and skyrocketing mortgage rates. This eclipses the high that occurred just prior to the great recession in mid-2006.