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Ag Marketing IQ: A slow-consolidating bear market brings us to a four-year low in corn, soybeans and wheat.

Jacob Burks, Partner

February 14, 2024

5 Min Read
Corn heart
Getty Images/alekleks

Well, it’s Valentine’s Day week and there is no love in the air for the grain markets. You have to look back to 2020 to find a mid-February that Cupid found himself showing up with such low prices in corn, soybeans and wheat.

These grain markets are best described over the last several weeks as a slow-consolidating bear market. Most of the analysis has drifted away from the weather talk in South America as the weather has turned more favorable for Brazil and Argentina production. (Therefore, a better likelihood of ample production to be the world’s leading exporter of soybeans, soybean meal and – more than likely – corn).

Anticipate a short covering rally?

No news is probably bad news in this case, but the market needs something to help stop the downward trajectory. There are a couple of items to be watching for that can lead to a change of direction among the grains.

As of last Friday, the Commodity Futures Trading Commission Commitment of Traders report showed the managed money traders holding a net short position of 297,744 contracts, that is only 24,271 contracts from a record short position from 2019. The managed money traders have remained relatively consistent in the wheat market holding net short positions around the 60,000 mark since mid-December.

Their involvement in soybeans has been the recent surprise. Since weather models began adding moisture to South Brazilian dry regions at the turn of the calendar, the funds have sold off over 134,000 contracts to bring their net position only 38,535 from the record net short position. A quick look back shows the funds have not been this short in corn, soybeans and wheat in the last five years during Valentine’s week. This shows the sentiment of the speculative traders in the market.

The market chatter is anticipating a reason for managed money to begin a short covering rally. What will spark an abandonment of their heavy short position in all three commodities?

  • Inflationary news on Tuesday came slightly above expectations and outside markets took the news abruptly but it didn’t seem to be enough to sustain any upward movement in the grains or livestock.

  • Do forecasted weather patterns this spring create fear?

  • Could it be like last year and news of expected acreage domestically vary from what’s being traded in the markets?

Watch the 10-year baseline projection

For the 100th time, the USDA Agriculture Outlook Forum will convene this week to give us their 10-year baseline projections for agriculture commodities. We must remember that these are the views of the World Agricultural Outlook Board and not the information gathered by the surveys performed by NASS. The information can and will vary from what we see at the end of March when the prospective plantings will be released.

However, this is information that the trade is starving for, something that can spark the liquidation process. In a Bloomberg survey, analysts projected the following average estimates for what the WAOB will publish on Thursday:

  • Corn acres at 91.6 with productions at 15.085 billion bushels and a carryout of 2.493 million bushels

  • Soybeans at 86.7 million acres, production 4.427 billion bushels and carryout of 420 million bushels

  • Wheat average acre guess: 47.5, 1.892-billion-bushel production and carryout of 720 million bushels.

Prepare for big moves to come

Not a lot of detailed market analysis is focused on this week over the years (and probably for good cause). Yet, look at 2022 and 2023 for this week. It shows the market had significant market movements after “love week.”

  • In 2022, the lack of love between Russia and Ukraine came to a head directly after and we know what came to fruition.

  • Last year, soybeans put in a high of $15.43 on this week before falling to $11.45 by the first week of June. Corn gave up 78 cents in four weeks and wheat gave up $1.10 in the same time frame.

There’s no real correlation with this week and consistent movement or trends in the market but these latest results remind us that big moves can happen when least expected. Stay flexible in your marketing plan and have orders working where you can take advantage of sudden market movements.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading information and advice is based on information taken from 3rd party sources that are believed to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you.

About the Author(s)

Jacob Burks

Partner, AgMarket.Net

Jacob Burks is a partner of AgMarket.Net, the farm division of John Stewart & Associates. He joined AgMarket.Net as a hedging strategist during 2021. He was previously at First Capitol Ag and Kluis Commodity Advisors. He earned his Bachelor of Science in Agriculture Business from Arkansas Tech University and earned his Masters in Business Administration from Southeastern Oklahoma State University.

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