Corn and beans have been chopping lower for the week despite a fair amount of very bullish news. Planting progress was arguably the most important bullish news and Tuesday’s close did not reflect that. It feels like the market is in a bit of a holding pattern as we await USDA’s latest estimates on Thursday. As noted before this is a big one as it is the first time they will show us the whole new crop balance sheet. They also need to make updates to the South American crop as well. I expect to see a wide range of estimates from the market participants which could set up for some volatility no matter what the numbers are. Since we have already had such high volatility it may feel like just another Thursday.
Corn planting progress was 14% compared to expectations of 16% and less than half the average for the week (33% average). Beans are not as far behind at 8% planted compared to the average of 13%. Part of what reduced the market’s reaction to the abysmal planting pace is there seems to be a window opening up in the next week or so. We know how quickly the crop can get in the ground once there is a window to do so. The market is not in full blown panic yet. We are quickly approaching the date when there will be full panic but not yet. I think we have probably taken the top end off yield and the first frost date will be very important this year. This sets up for a narrow pollination window as well. We have heard anecdotal stories of corn seed being exchanged for bean seed. All this is to say that summer weather is going to be even more critical. Personally, I still think this crop is going to be planted. I am looking for the new highs to come in late June or early July on a hot dry forecast but it all depends on the weather so that is just a wild guess right now. What we do know is how tight the balance sheets all are and we cannot afford any production hiccup. Bull markets have to continue to be fed so this market is looking for the next round.
There are areas of Brazil that have not had any rain in almost all of April. There are areas of the second crop corn that are going to be an absolute disaster if they do not get rain very soon and the forecasts do not look too promising. Private estimates continue to reduce the size of their crop but an increase in acres will help make up for some of the loss of yield. We will see USDA’s updated estimates but I think the market is watching other sources closer than USDA for South America production.
The biggest threat to this market comes from outside grain supply. A world economic slowdown is our biggest threat and one that is very difficult to read. All kinds of global trade continues to back up from the Chinese lockdown of Shanghai. Between Covid lockdowns and the war and all the other logistic bottlenecks we are working through it is amazing we have continued as far as we have. I think this speaks to how important expectations are to economic growth. As long as people continue to believe things are improving, they are. We saw some confirmation of positive economic growth this week as crude inventories fell by 3.5 million indicating increased demand. Traders were expecting an increase in inventories so a drop was a bullish report.
What To Do
I have no change from the last few weeks: I would be finding places to get old crop beans sold out. We do not need to sell below $17 but I would get sold out above that level. You can work orders if you want to scale out. Similarly with old crop corn, be working orders to get cleaned up. I still think 15% new crop corn and 25% new crop beans could be protected. I am not pushing to be aggressively sold for new crop but nothing wrong with having some done. Even with high inputs with any kind of yield we can make some money at these levels.
Wheat
Wheat has gotten a lot more headlines and had a lot more volatility this week than the rest of the grains. Spring wheat planting is behind expectations at only 19% complete compared to 28% average. The winter wheat crop is only rated at 27% good/excellent when the market was expecting a little improvement. Since the start of the war in the Ukraine, a lot of headlines have been talking about how much more wheat India is going to have this year and will help offset some of the lost production. This week first there was a rumor that India was going to limit exports due to declining production, record heat, and increasing domestic prices and all the wheat markets soared in reaction. The next day officials in India walk back the rumors saying they do not anticipate curbing exports below some high levels so the markets turned lower. But then the rain totals from the Plains that are in desperate need of rain were less than forecast so the market rallied again.
We are finally seeing some carry come into wheat. We have the potential of good yield on the acres we have planted in the southeast. Everyone needs to continue to plan the logistics of moving wheat. We will start cutting before long.
Cotton
Parts of Texas are completely burning up which is what has propelled cotton higher into new contract and multi-year highs. Crude oil has been higher which also helps support cotton. Cotton is also more at risk on an economic contraction which set up for a big selloff on Thursday when the stock indices dropped. Same advice on cotton I have been sending for a few weeks, make your decision based on your opinion of economic growth. If you think we grow through all the challenges, only sell a little cotton. If you think the economy contracts, scale in bigger amounts.
