Has the bloom faded for now?

Published on: 12:44PM May 24, 2016


It would appear that the colors have been fading just a bit from the commodity bloom as a number of global markets have truly lost the luster.  This is nowhere more prevalent than over in China where, as we know, a number of markets appeared to have reached a fevered speculative pitch before the government stepped in with measures to “discourage” trade, which as it turns out has been extremely effective.  The advance in the Chinese markets were led by the industrial use metals and as would be expected, they have led the way back down as well.  Over the past month Iron ore futures have dropped 30%, Steel rebar 32% and Rolled steel right around 28%, taking each of these markets back to levels they were trading at in late February.  To put this in perspective range wise at least, if soy and grain markets were to retreat back to the late February price range we would have beans around 8.80, corn at 3.70 and wheat, well wheat would be right where it is already.  While I for one am not looking for that kind of a washout, particularly seeing that we have witnessed shifts in the underlying fundamental picture and we still have all of the risk of the growing season ahead, but do not lose site of the fact that a sizable portion of the rally came via speculative interest and when/if that wanes, then reactions could be sizable as well. 

In his weekly update, Dr. Cordonnier highlighted the ongoing concerns with the safrinha corn crop in Brazil and particularly in Mato Grosso.  That state produces more than 35% of this second season corn and it is now projected that it could be the worst crop in five years.  This should almost certainly have additional positive impact on the corn exports from the United States.  At this point he has left the overall corn production estimate unchanged at 76 MMT but leans towards lowering those numbers on future estimates.  His soybean estimate is left unchanged for the nation at 97 MMT.  No changes either for Argentine production with estimates of 25 MMT for corn and 56 MMT for beans.  It is now estimated that the bean harvest in that nation has reached 61% complete which more than doubled in the past week.

The domestic corn planting pace fell slightly behind estimates but at 86% is still a percent above the 5-year average and emergence at 60% is 5% ahead of average.  As expected, the eastern side of the corn belt remains the problem area with Ohio at 51% complete, Indiana at 62% and Michigan at 65%.  We should have our first nationwide conditions report next week.  Soybeans planted increased 20% and now stands at 56% complete which is 4% ahead of average.  While windshield observations are always subjective at best, I have traveled across Iowa and into eastern Nebraska over the past few days and the corn that is emerged certainly appears healthy and while I have encountered more a few wet areas, planters continue to roll so it should not take long to wrap up the remaining beans in these areas. 

There have been several stories floating around that while El Nino has “officially” ended and we are progressing towards a La Nino, the current models suggest that if that does indeed develop, it could be a weak one.  I have to imagine that came as a disappointment to some of the recent bean bulls and may have contributed to the selloff witnessed in that market yesterday.

That pressure has extended into this morning for the bean market and while corn was immune yesterday (possibly bean/corn spread unwinding) it lacked follow-through strength overnight and appears to be teetering on the edge of turning lower as well. Most marcos, outside of energies look negative for grains so without a positive story quickly, bulls may be in an exit mode for now.