Grain markets are trading in a full blown weather market now and spurred on by inflation money flow. It has been dry in Southern Brazil and Northern Argentina for weeks and the two week forecast also looks very dry. Many people have asked why the market is just now taking note if it has been dry for weeks. The risk of government shutdowns due to the omicron variant has been scaring money out of all the markets, energies, equities, commodities. Several government leaders have talked down the possibility of widespread shutdowns again. We are also seeing case numbers actually level off in South Africa and hospitalizations never kept pace with the rising case numbers. There have been more and more news reports and studies quoted showing how much less potent this new variant is than the last ones. This has all been very reassuring to the market even as we see case numbers start to rise in other areas. Getting the worry about the new variant off our back has helped the markets trade the weather we have been seeing for a while and attract the institutional money back into the Ag commodities.
This is a full blown weather market and we are going into a three day weekend where the market will not be able to price in each subsequent weather model run. The weather forecasts can change significantly over the three day holiday and the market will have to price all the changes at one time on the Sunday night open. If the models stay dry in the extended run there may be some fireworks higher on the open. If some moisture starts building in the long term, we will open lower.
Corn
Corn was finally able to break through all the resting orders at $6 vs the March. There were a lot of farmer sell orders around the $6 level. Now that those orders have been filled, there may be less natural sellers as there is nothing pushing corn out of the bin. The market is going to have to bid it out and after the run last year farmers are going to be more reluctant sellers. In addition to the weather in South America, corn continues to get strength from good ethanol margins.
If you are less than half sold on old crop corn, you need to be scaling in sales here above $6. Despite the record crop we had in the Southeast, basis is already getting stronger across the board. There have been some rail delay opportunities but there should be more through the winter. On new crop, we remain patient waiting on corn to make a run in a bid to buy acres. Hold off on new crop sales.
Soybeans
Soybeans have had a bigger move than corn in the last week and finally was able to break through resistance at the $13 level. The main driver has been dryness in South America but has also been supported by strength in meal. Soybeans do not have much technical resistance above until almost $14 but since this is a weather rally the technicals are not the driver. Weather forecasts are much more important.
If the forecasts stay dry, there is a lot of upside in beans. If they start getting moisture, there is downside. The only way to manage risk in a weather market is to scale in sales and reward the market. Similarly to corn if you are not halfway sold on old crop beans, I would recommend getting there by scaling in sales. Basis has remained strong all the way through harvest and is now getting stronger. In contrast to corn, we need to be scaling in sales on new crop beans. Beans are not going to have to work as hard for acres for next year. We do not have to sell all of next years beans immediately but have some orders working.
Wheat
Wheat finally was able to break back above $8. Strength in the other commodities is helping wheat as well as continued dryness in the great plains and the now familiar geopolitical risk of tensions between Russia and Ukraine. Russia and Ukraine are the two top exporters of wheat so a conflict between them would disrupt the global supply of wheat. Ukraine announced this week they are going to limit wheat exports to protect domestic supply which also helped futures. Wheat is riding the inflation wave too. If you have old crop wheat to sell, i would be scaling in sales now that we are back through $8. Same for new crop.
Cotton
Cotton found more support from bullish economic sentiments than the weather that has been driving the other commodities. Shaking off the worry of the omicron variant has really helped support cotton. The political pressure building on cotton produced with forced labor also helps cotton as well as higher energy prices. New crop is back over 90 cents. Cotton should stay supported in order to attract needed acres but i recommend getting some sales on above 90 to manage risk.
I hope everyone has a very Merry Christmas!
