This has been the most exciting week in the markets we have had in years and it did not even come on a USDA report or any other scheduled news. There are a few new things that have propelled the markets this week. I do not think the weather in the US is the biggest driver yet. It is still very early for a US weather market so I think that is a whole can of worms that has not even been opened yet. I believe the corn market is buying acres at these price levels some of which are going to come from soybeans which cannot afford to give them up. I believe the biggest factors driving the market this week are Chinese demand and South American weather with an added boost from the tightness in the edible oil market.
This week, news wires have gotten very credible information that the Chinese government has been reaching out to Chinese livestock producers and telling them to start preparing to use ingredients other than corn and soybean meal in feed rations. China had slowed purchases from overseas so people had started to believe that some of the reserves may have been built back up but this information is a big indicator that may not be the case. On top of that news, there have been rumors of China sniffing around for US corn and wheat and also French wheat. Some analysts have speculated that the government has released so much of their strategic reserves to try to keep everything going and now is trying to replenish it as there does not seem to be a quick end in sight to all the shortages anywhere in the world.
The second crop corn in Brazil is reaching a critical stage. If they do not get rain soon, losses could be hundreds of millions of bushels off the already tight world balance sheet. Brazilian prices have exploded as domestic users try to get coverage from elsewhere. They are going to be importing from Argentina and possibly the US. Brazil is going to have competition in buying Argentinian corn as several sources reported Smithfield has already bought 2 vessels from Argentina to arrive in Wilmington in August.
Both of these have caused corn users in Brazil, China, and US to start hitting the panic button and start paying up to get coverage on the books. That is why the market has been so explosive this week. I have been writing that the market has a hair trigger to any additional supply or demand shocks and that is what we have seen. We have not even started the US growing season yet!!
It is cold and it is dry in many areas of the Midwest but it is still early. They will more than likely get the crop planted quickly and in dry conditions. Many areas of the Midwest are very deficit subsoil moisture so they will need timely rains all growing season long. That is many opportunities for additional weather premium.
You cannot make this stuff up
USDA press team chose this week to announce they hoped to add four million more acres to CRP. All that it will take is more money and we are printing so much of it right now, why not? This probably did not have a big impact on price this week but all these factors reducing production are really adding up while demand is not slowing down.
What to do
I think everyone should be up to 25% priced on corn and beans at these levels ($5+ corn, $13+ beans), but after that I think we can be patient. We have a long growing season ahead. If you are below that, sell small and work orders above the market. What looks like reaching today may get filled tomorrow. Every resistance level got blown through this week. Technical indicators do not matter when there is growing panic. But do not be surprised to see a pullback. I think it should be relatively shallow since end users are scrambling to get coverage. Speculative money contributes to volatility and can cause wild swings, but when a rally is driven by the fundamentals there are so many users looking for coverage they can make up for fund selling when it happens.
You can sell feed wheat for $7+ in many parts of the Southeast. Flour millers are going to have a hard time convincing people to keep the bugs out and sit in line and have the risk of being rejected. The feed market is so big in the Southeast that it can suck up all the wheat and not hardly feel it. The Southeast is unique because of how much corn we bring in, but wheat was starting to work into feed rations in many other places of the world. That is part of the reason the wheat market needed to jump higher. There is cold weather on the winter wheat, not good planting conditions in spring wheat and more incentive to plant other crops so wheat has weather to scare it higher as well. There was a standoff between Russia and Ukraine that at one point looked like it might come to shooting which would be bullish wheat. Russia seems to have backed down for now but there is lots of geopolitical risk to wheat. And the big elephant in the room is rumors of China buying wheat.
If you want to ship wheat and be done, you are not wrong selling $7 feed wheat. If you want to roll the dice and see how much of a premium the flour millers are going to pay that could be considerable. If you want to wait and see how your wheat turns out, this is a year you can be patient. Usually this time of year you need to have your home spoken for if you need to ship at harvest. Not so this year.
Cotton is finally starting to join the party. Cotton has lost acres to weather and price. It is very dry in Texas (shocking I know). Cotton has not kept pace with the explosiveness of the grain and I think that is due to concerns about demand from China. They are not buying cotton like they are buying grains because they do not have to. I think we are going to see cotton have to catch up to everything at least when we see acreage in June.
Corn in Brazil