Watching the markets this week has been like watching paint dry but at least we have found support and are not enduring the bloodbath of the last several weeks. Fund and farmer selling were the main features during the break in prices. Farmers were being forced to sell as they had to raise cash to prepare for new crop. The reason the funds are selling is still a bit of a mystery as all the fundamentals appear to be getting more and more bullish on corn. See Mid-March managed money grain positions in the chart below.
Corn
We are projected to carryout significantly less corn this year than last despite a record yield. The highest corn acreage projections for the upcoming year are not above 92 million acres indicating that with similar demand we are going to need a much bigger yield to maintain comfortable stocks and the world balance sheet is getting tighter. Floods are devastating Nebraska. 41 of 99 Iowa counties have declared states of emergency. With record snowpacks in several states and forecasts for a wet April the flooding will probably only get worse before conditions begin to improve. Even if conditions do not get any worse, 92 million acres feels like a longshot. There is nothing bearish here that we see to explain why the fund money continues to sell corn at these levels. Since they have to report their positions, we know the funds have continued to sell this week. The volumes this week have continued to increase and the board has not moved lower indicating there is very willing buyers at these levels. The most reasonable explanation is end users stepping in to get coverage. They are looking at the same fundamental analysis we are and are worried about the upside potential in corn. When the funds do get spooked and decide it is time to exit their positions, the door is not going to be big enough to let them all out at once.
I feel like a broken record and worse sometimes as I write about the upside potential for months to then watch the board trade sideways all winter then try to test the harvest lows in March. At the end of the day, the fundamentals of supply and demand will rule but there can be a lot of static before we get there. The funds have built a near record short and they will have to buy corn to exit that position. In 2016 when the funds built a comparable short in March we hit 4.39 in June on summer weather. Now is the time to start setting objectives and working orders. When the market does start rallying many are going to overestimate how high it will go so having orders working at profitable levels and sticking with those orders will help cover costs and manage risk. $4.10-$4.17 December futures should net at least $5 delivered in most markets. Even higher than that rolled to the March and shipped in Dec or Jan.
GET ORDERS WORKING
Soybeans
Soybeans have been able to show remarkable strength in the face of their very bearish fundamentals and the selloff in corn and wheat. We are also adding the risk of increased acres if the Midwest remains too wet to plant corn and forces some acres to switch to beans. The market has grown tired of the constant headlines about China without seeing any evidence of progress. The cycle has grown very predictable (see graphic below). To put a positive spin on it, one analyst suggested that the longer it takes the better chance we are going to get a meaningful deal instead of just giving in to their demands. Reportedly the most recent hangups involve enforcement which will be very key if the deal is going to have a lasting positive effect. We have made many deals with many countries and then just watched as they ignored the terms.
Weather in South America has turned non-threatening. Market will be watching for acres in the US. There is nothing to do in beans but work orders and wait. I see no reason to work anything less than $10 for new crop. We have plenty of time for something to happen.
Wheat
Wheat has finally found some significant support. US seems to be competitive in the world market on paper but based on the announced tenders and export figures we have not been able to execute so far. Condition ratings in the US have not been surprising so far. Current flooding and long term forecast will not improve condition ratings so the funds will be watching closely as they have built a sizeable short.
Cotton
Cotton found strength on the second week of good exports. It has fallen into the same cycle as beans on the trade war cycle but has pushed to some three month highs this week. Cotton was able to shake off the selloff in the equities after the Fed comments due to a sharply lower dollar. Cotton has a more positive outlook than beans, but needs a trade deal.
