Special Market Update

Macros

Ukraine/Russia War still limiting supplies of corn and wheat for this year and possibly next year, and food inflation still with us in the world.  Stock market getting hammered last 8 weeks with the S & P 500 dropping a little over 20% (bear market) before making trying to recover yesterday.  All about the FED and interest rate hikes and will this cool demand and earnings.

Think of the markets like a triangle.  At one endpoint is inflation (pulling up commodity prices).  At another point is the FED, raising interest rates and limiting credit to reduce inflation by slowing demand (bearish commodity prices).    At another point is the stock market, with fears of recession and earnings dropping, pulling down stock prices and increasing a risk off trade environment (bearish commodities).  At this point stock market seems to prefer negative news (one or two stocks having earnings disappointments and the whole stock market goes down).  The one thing the FED cannot do is increase supplies of goods and services and commodities, so inflation very much with us for now.  Non Commercial money is still net long all 13 ag commodities overall, but have cut their net long towards the bottom of the range (450 to 850k net long) we have seen for the last 12 months due to bearish Macros.  If Macros turn positive and/or weather problems develop, lots of room for them to increase long positions. 

Corn

The big bear news is report that China and Brazil have agreement now on corn purchases from Brazil as China attempts to replace Ukraine corn and China/U.S. relations not the best.  Up to now, Brazil did not export corn to China due to lack of phytosanitary agreement.  An agreement changes spreads and makes the corn futures and futures spreads more volatile, but not the overall Supply and Demand for corn.  For now the market bears in charge.  July corn trying to trade under the 50 day moving average at $7.67, with further support at weekly low of $7.59 from mid April.     Old crop corn has not traded below the 50 day SMA since January.  As always, watch the close.

Basis levels and cash prices still look very strong, so demand is out there even as these elevated prices.  Gasoline prices are at record premium to ethanol, so ethanol demand should stay strong.   Export inspections yesterday a very strong number with China taking the about 40% of those bushels, so has been strong, but Brail/China throwing a wrench in the works.

In the May WASDE report, USDA decided to front run yields and based on late planting, reduced yields to 177 bpa vs the 181 bpa yield they had been using.  Unusual move for the May report but has happened once or twice in the last 30 years.  As always, weather rules so a late planted crop can still have a very good yield under the right conditions, just as an early planted crop can still have very poor yields due to weather (2012-2013).  New crop corn hit a high of $7.6625 before reversing, support at $7.32 and $7.27 as December contract tries to stay above the upward trend line.  Below that we have the recent low of $7.0375.  Lots of questions about the Northern corn and soybean plant as to planting progress and coming up on final planting dates.  Market comments are that we may get 90 million acres of corn planted but no more.  With 90 million acres planted and 177 bpa not much room for weather issues.  That said, some of the short term cycle traders have called the $7.66 high on May 16^th the high of the year.  Still seems like lots of weather to trade.  Remember last year’s high on December 21 corn occurred in early May and short term cycle traders called the high last year right on the money.   December corn support ultimately at $6.8475, the close on the surprising March 31^st planted acres report. 

Soybeans

Crush margins strong and demand for soybeans still strong on export markets.    Old crop stocks to use still looks very tight unless China rolls some of the current year purchases to the new crop.  July soybeans took a run yesterday over the $17 mark and then reversed.  Resistance at $17.04 then $17.29 on the charts.  Support at $16.69/$16.59.  Like corn the soybeans have tried to break out to the upside but failed.  Like Wheat, down days in these volatile markets does not change the tight Supply and Demand conditions.  New crop November soybeans have a contract high of $15.55, with market finally reaching the $15 mark but unable to take a run at that high water mark.  Support at $15, with upside targets of $15.40 and $15.80 if we can break through the contract high. 

Recap the speculative long position, macros are bearish with Stocks and Recession fears.  Throw in planting progress and market trying to find a bottom end of trading range as Speculative positions getting liquidated.   Wheat seems to have no problem trading 50 to 75 cts range on a daily basis, seems to be no strong consensus on where that market should trade, and that adds volatility to the corn market.  Crude oil still high, food and energy prices high and seeing food and energy riots in parts of the world.  FED raising interest rates and hawkish comments have hammered the stock market but have not stopped inflation.  Estimates are that $35 trillion dollars of wealth has been lost in world equities sell off or about 14% of world’s wealth.  Would think that ultimately that kind of loss will be disinflationary or even deflationary.