REMINDER: MARKETS CLOSED TONIGHT/TOMORROW for Juneteenth Holiday. Grain session resumes Monday night at 7.
Check out this link for expanded video commentary:
https://www.loom.com/share/029f6e7ae7e84fc5bd6a88e165f13a23
July corn gained 36’0 to close at 640’2 last week, highest since February 13th and nearly a dollar removed from its May 15th July soybeans gained 80’0 cents to close at 1466’2, highest since April 27th and up nearly two dollars over the past couple weeks. July spring wheat gained 41’6 to close at 853’4, highest weekly close since April 10th though still well below the 888’4 daily high from May 17th.
All three grains posted furious rallies last week as rains in that eastern Corn Belt bullseye continue to underperform and trade is increasingly uneasy about what happens if this pattern extends into July. This of course fits very well with what we’ve been talking about the past month. Recall that we make a habit nearly every week of articulating what we think happens next. This has including correctly/loudly pointing out the May 2022 highs, the counter-seasonal July lows a couple months later, the winter secondary highs and of course three weeks ago the spring low and expectation for rally to the 570-580 area. This perhaps all looks obvious with how incredibly useful hindsight is but it’s not necessarily so easy to lay out before it happens. Anyhow, we’re back to a pivotal moment as grains have achieved the objective we set a few weeks ago, so what happens now? There are a few things to consider that help lay out what is most probable.
Starting of course with weather. One thing to note, this isn’t 2012 at this point. By definition it can’t be. July was what doomed the crop in 2012. And specifically, scorching heat with zero rain across the entire Corn Belt during pollination, including these crazy record high night time lows approaching 80 for the whole stretch. We don’t obviously know anything about July weather yet but that sort of heat dome is not being suggested. On the other hand, rains continue to underperform forecasts and it’s getting down to crunch time. These two well-respected forecasters talking to each other on Twitter frame it better than we can:
Going into 2012, corn had old crop ending stocks roughly half of what they are this year and at all-time record lows. Further, the new crop 2023 balance sheet is projecting a carryout nearly 600 million bushel higher carryout than the June 2012 (pre-drought) one. Also, Brazil is harvesting a record Safrinha corn crop that is about to hit the world market and U.S. corn/bean exports were significantly overpriced even before this rally started. It won’t matter at all this week or even the next month but it will matter by harvest and is the reason you’ll need to make marketing decisions well prior to harvest.
Nearly as important as the weather is the Managed Money net position. We touched on this in detail last week and to recap: During every weather rally in the ethanol era, Managed Money has peaked their net long position at over 200k contracts and as of last Tuesday they were only long 2,000 contracts. While they’ve certainly added length since Tuesday, they have a lot of buying to do yet.
We’ve talked about 2013 at length and even as the weather diverges from 2013, the overall market structure of 2023 is still quite similar. But even looking at bull market years of 2022, 2021, 2011 or 2012 the pattern of posting a summer high and then falling sharply into harvest clearly stands out and we should expect the same this year – wherever this rally tops out, harvest price will ultimately be much lower.
So again, what happens next? Markets will almost certainly be sharply higher to start the week tomorrow night as this is a forecast that Managed Money gladly keeps buying. We think its most probable this is a transition week – markets post impressive gains to start the week and then stabilize for a brief moment waiting on early July forecast clarity. With so much tied solely to weather, it’s not useful to project out more than a few days. But this is also why the Price Signal charts are so valuable as we should see strong sell signals when the time comes even as everyone else is still unfettered in their bullishness.
A couple other things besides weather:
- There is widespread anecdotal evidence the extreme heat in late May/early June did severe damage to the spring wheat crop and the market doesn’t fully realize it yet. We suspect Tuesday’s condition ratings will show a much bigger drop in spring wheat conditions than the market expects and will provide additional support to wheat alongside row crop weather.
- The EPA delayed its final Renewable Fuels volume announcement until this Wednesday the 21st but bean oil/canola/etc. has been rallying in expectation of favorable volume targets for renewable diesel.