Weekly Commentary 04.03.22
May corn lost 19 cents this week to close at 735’0 while Tuesday’s 713’4 daily bottom was the lowest since March 1st. May soybeans lost an incredible 127’4 cents to close at 1582’6 in what has to be one of the largest weekly losses ever and is also the lowest weekly close for beans since late January. May spring wheat lost 39’0 to close at 1065’2. On Tuesday the May contract joined corn in printing its worst number since May 1st with a dip to 1019’4.
Thursday’s planting intentions report was shocking to say the least. We note (only half-jokingly) corn acres # suggests $8.00 corn while the bean acres # suggests $8.00 beans. A day and half of trading that followed didn’t clear up much confusion and we’re left trying to make sense of what happens next:
CHARTS BELOW Courtesy of Matt Campbell/Stone X
The largest acres deviation ever for corn as the USDA reveals 2.5 million less corn acres than the average trade estimate and lands well below even the lowest of trade guesses. Most of those acres swung into beans with acres up nearly 2.3 mln from pre-report estimates. North Dakota was perhaps the most bizarre with corn, bean and wheat acres all down and somehow, total estimated planting acres for the state down nearly 400,000 acres. This despite every single crop we grow at all-time high prices and the ability to farm fence row to fence row following the drought. In other words, plenty of room for scrutiny here and there is an ample supply of it all over the internet. But as with all things USDA, these are the numbers we trade until we learn something different in the June 30th report. So what does it all means?
Corn acres if realized are shockingly bullish, leaving no margin for error as that crop will be at pipeline stocks even with a trend yield. Beans on the other hand would see new crop carryout swell to over 400 million bushels. The soy/corn ratio needs to quickly change to compel acres back into corn. So why the sharply lower old crop trade this week? This is a good spot to mention our Price Signals were right again, signaling the selling opportunity we noted last Tuesday. Beyond that perhaps war news is stagnating a bit. The Ukrainian Ag Ministry insists crops are being planting on time and with no fuel shortages. It seems credible/plausible that Russia intends to regroup and focus attacks on the eastern disputed regions. With most Ukrainian farm land west of that area it could allow for more planting. But most likely, the large spec was caught out of position and had to rebalance a bunch of spread and outright long positions after the shocking acres numbers.
A few more charts to help characterize things:
As we’ve noted for months, 2022 continues to most closely track 2008, though now at higher prices. The circumstances were a bit different but 2008 beans had an early spring price collapse while corn stayed well supported. In spring of that year, the soy/corn ration dipped below 1.9. (Also, in all three major bull market years the soy/corn ratio spent significant time below 1.9.) Dec 22 corn made new contract highs last week despite the front-month losses for all ag commodities. Seasonal comparison suggests new crop corn price stays well supported while soybean price adjusts to a ~1.9 ratio (currently 2.04). And there is still a much higher than normal probability of major summer rally, led by corn.