July 15, 2022
Overwhelming negative sentiment in the markets has been frustrating to live through recently. Traders have chosen to focus on the overall macroeconomic situation consumers are facing with rising interest rates and a slowing economy. This week’s announcement that inflation for June’s year-to-year level increased to 9.1% is not going to help things. This will likely push the Fed to raise interest rates more aggressively, perhaps supplying more substance for the bears to keep a lid on rallies.
Furthermore, we can’t escape media coverage on how the UN is working with Turkey and Russia to create a new grain corridor from Ukraine at any moment. As we mentioned in our market report, “The market would have us think that we have a bin buster crop on the way and global demand is going to shrink so much that the world no longer needs all the Ukrainian grain held hostage by Russia”.
This could not be further from the truth. We would highlight that grain prices are now trading below pre-Russian/Ukraine invasion levels, which would strongly indicate that grains are undervalued.
While there are always going to be several bullish and bearish factors at play at any given moment, the most important factor right now is weather. Most everything else is just noise. The market has temporarily lost its focus on the fact that the next 45 days will be the most critical to our production supply as we enter pollination and grain filling stages of production.
Although we are nowhere near a situation like 2012, drought influences will make it difficult for us to achieve trendline yields. Weather forecasts seem to agree that the next two weeks will likely remain unfavorable for crops.
Bears could point out that the driest areas are mostly limited to the Mid-South in areas like Arkansas or Kentucky. That was true a few weeks ago, but drought’s footprint is expanding. Parts of the Eastern Corn Belt will see rain, but the Western Corn Belt is getting drier with many 90-degree days on the way.
I have also watched how the corn market has moved in parallel with crude oil up until this week. Last week, it seems that where crude went, so went corn. This week was somewhat heartening to see the corn market appear to begin decoupling itself from the energies.
The corn market held up pretty well, considering the bloodbath we saw in the crude market. We did see some strong buying coming in yesterday from crude, leaving a long tail which typically indicates a bottom is forming. We don’t necessarily need the crude market to go back up, but it would help if the grains didn’t have to fight the crosswinds of a declining crude market.
One final comment is that basis levels are one of the strongest indicators of available supply. Basis has strengthened tremendously in the last couple of weeks, offsetting part of the loss in the futures market. I know in NW Iowa, ethanol plans are bidding $1.25 over September, and it is the same situation in many other parts of the Midwest, including Illinois. That’s a strong indicator that old crop levels are depleted, and buyers are struggling to make it to harvest. This will carry over into new crop, as buyers will rush to fill the gap.
Futures trading involves risk. 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. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that CommStock Investments believes 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 opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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