This has been a very serious price decline for reasons that we either do not know…..or the market truly did not represent the news we had to decipher. As of Thursday’s close, both corn and beans fell a record 77.25 cents and $1.86 respectively for the week. This unprecedented volatility created huge adverse swings for any account with an ownership position of futures or short puts. This move however has also created a huge, unexpected opportunity for anyone needing to buy grains.
The following is the news we are aware of as well as a quick comment:
Weather Change - Last week hot and dry. Last Sunday night the models changed and called for below temps and above precip including a general 1-3 inch rains followed by more. The market opened 20 lower versus a 20 higher call. That change in pattern has not happened and as of tonight, 2 models have gone dryer for Central IA and west. One front has already moved through, and the most potential rain is on Sunday. Some follow up scattered stuff next week and then some models are hotter and drier from June 22 to mid-July. Thus, if on Sunday we realize the western belt missed most of the rain, and the warmer and drier pattern verifies, this market could be volatile higher.
The BLEND – a couple of east coast entities requested with the support of many refineries for the administration to consider a lower blend or exemptions as Pres. Trump provided. This got a lot of press from Reuters last week and Bloomberg this week. The comical part of this story is that it was sent last week when Pres. Biden was doing the G7 and G20 thing – convincing the world we need to be carbon neutral. According to RFA, there are test on Cummins engines today that yield a 99% carbon neutral burn and they are confident that gas and diesel engines will be at or near 100% Carbon neutral within 5 years versus electric vehicles that will take a revamp of all coal fired electric plants. The congressional pressure to move towards Carbon neutral will likely give Biden the momentum to stand his ground for a greener environment and any concessions to refiners will be incidental at best. At this point, these industries don’t need exemptions, they simply need to take advantage of the huge price sell off this story helped create and get their requirements covered. Ethanol, Bean oil and Rins are SIGNIFICANTLY cheaper and profitable for blenders. If they don’t buy when it is cheap – that is their problem.
The FEDS – minutes confirmed that the Feds are planning on raising rates to offset inflation…..by 2023. But that news sent all markets in the direction that it was happening now. The dollar exploded, commodities and the Dow declined with equity loss and margin call selling.
CME and CFTC Policy – the new rule allowing funds to double their position limits was thought to be healthy for markets by providing more liquidity and balance in a growing marketplace. Funds had not even come close to having that size position on, yet this week’s decline proved that when large volume has the same computer risk management tool saying get out….you just cannot get that many cows out the door fast enough. For you ‘ol dairy folks you know exactly what I am talking about. Maybe current position limits should be re-thought.
Margin pressure – in today’s new and better risk management precautions, when an account is on margin, trading platforms can restrict any orders placed to liquidation only orders. There are some that execute a liquidation if margins are excessive or not met daily. AS the market fell, 30, 50, 80, 100, and 120 cents lower, you can be assured positions were liquidated.
China – There was one report suggesting the administration was going to consider tariffs again to pressure China on Taiwan, Hong Kong and the S China Sea. Fear this would escalate again to where we were under the Trump administration came back like a bad night mere. We are pretty confident this again is FAKE news. China needs our grain and has every intention of buying US Feedstocks. Biden does not want conflict…he wants understanding and progress.
Bullish news you CANNOT ignore:
I have not checked on this, but I am pretty sure last week’s crop condition declines in several states were near record declines. We expect another significant decline in conditions in IA, NE, SD, ND, MN, WI as most areas missed rains through Thursday night. Any field planted in wet conditions, on light soils or a knoll have circulated the picture media and are not doing well. Here is an example:
From ST Louis Area:
The bottom line for weather is this….we need record or near record yields. USDA is using 179.5 bu per acre when the previous RECORD was closer to 176….and stocks are still tight using demand numbers we think are too low. With fields under stress at the grith setting stage, we simple do not see the math to support a sustainable bearish market unless USDA raises acreage to 95-96. The MOST acres our staff has been able to find are 3 million to be split with corn and beans. So adverse weather will be VERY Bullish.
The Brazilian Safrinha corn crop is likely 90 mmt max. This means that at least 200 million bushel of world corn demand will be forced to the US. This assumes that Russia, Bulgaria, Ukraine remains cheap enough to be the supplier of the other 200 million bushels the world needs before it turns to the US. Our international expert suggests Brazil will stop exporting corn in August for sure, maybe July like they did last year. The timing of such a shift would add more fuel to a fire if US weather remained threatening.
China – their hog herd (which is 50% of all hogs in the world) is now shifted to commercial fed in confinement production. In the last few years, China corn production has fallen short of consumption by the following amounts:
These shortages cannot be made up with a good crop in the coming year. They are simply using 25-30 mmt more than they produce. They will continue to be a buyer of US feed stocks.
WE have been recommending you are 50% sold with options against every sale. We believe the only definable risk to this market is an acreage/stock surprise and ideal weather. In other similar years we studied, we do not believe that current highs reached a value that caused rationing. And the current decline has encouraged profit margins for many industries. Thus, barring a USDA shocker or a major change in weather to support record yields, we should all have another chance to sell a good rally. Obviously, we cannot rule those defined risks out yet, but there are no models today that would suggest otherwise.
Source: Ag Market.net, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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. 2021