Much of the U.S. will see above-normal temperatures next week, but you wouldn’t know it by looking at commodity prices. Fund liquidation seems to be a growing trend, with commodity markets under pressure the past two weeks despite the extreme weather.
“The move out of the commodity complex, as a whole, by investment money has been winning out,” says Darin Newsom of Darin Newsom Analysis.
Newsom says the liquidation is spilling over into the entire commodity complex. Cotton, corn, soybeans, wheat and more are unable to escape it. It comes at a time when any type of weather scare would normally spark a weather rally. This year, that just isn’t the case.
Read More: Half the U.S. Corn Crop Was Planted in Two Weeks, Now the 10-Day Forecast Shows Signs of Trouble
“The fundamentals are still bullish pretty much across the board; you just can’t get anybody to buy,” says Newsom. “That’s even with the type of weather forecasts we’ve seen, particularly for corn and soybeans. That long-term inverted forward curve that we’ve seen in crude oil, investment money is just not interested in any of it at this point.”
The South and Southwest saw triple digit heat already this week. Next week, that dome of heat is expected to expand, and the high heat could impact a corn crop that was planted late.
“The forecast really couldn’t look any worse for anyone west of the Mississippi River,” says Tregg Cronin, a South Dakota farmer and grain analyst. “I think that the price action the last 10 days to two weeks is a pretty clear sign that we just cannot get any momentum to the upside because of the macro influence right now.”
Cronin says when you see crude oil drop like it has the past two weeks, outside money is more concerned about the economy than what the varying weather models say.
“When we look at our markets, the corn, soybean and wheat market, we’re talking about markets of billions. And when you’re looking at fixed income equities energies, you’re talking about markets of trillions. And so the whiplash effect is just stronger right now than the fundamental drivers behind the yield. Eventually, that’s going to matter. Right now it’s just tough to stand in front of this with the outside influence that we’re seeing.”
Read More: Impressive Heat Coming to U.S. Plains, Western Corn Belt
What would possibly entice the funds to move from the sidelines back into the commodity markets? Some analysts fear there is no major incentive this year. However, Newsom is keeping an eye on August.
“To me, what some of this money could be waiting on, particularly if we’re looking at the ag markets, is early August, because, if they are long, they’re long only on futures funds,” he says. “If they have to be in the nearby futures contract, they don’t want to deal with the ridiculous August and September soybean contracts. They want to deal with the hybrid September corn contracts. So they’re going to wait until we get into early August, when we start to see the fund rolling. Those that are still in the markets from those contracts out to the November soybeans and December corn, they’re gonna jump back in, particularly if fundamentals are still bullish.”
Newsom says if the possibility of some short-term bottom being formed in the three key U.S. stock indexes, and a large rate hike by the Fed has already occurred, that could possibly bring the fund money back in August.
Read More: AccuWeather Thinks Next Week’s Heat Wave Could Scorch 30 to 45 Million Bushels of Corn
Cronin cautions producers that no matter what happens with commodity markets the next few weeks, prices are running up against a time when new crop contract prices will kick in.
“We can’t change the fact that in 30 to 40 days, depending on where you’re at in the Corn Belt, we’re going to roll the new crop. So regardless of what the size of this crop is, there’s still going to be more than we can use come September 15 or October 15. And so, those bids are going to roll and you’re going to lose another 60 to 70 cents.”
Cronin says if the market is going to see some type of short-term bottom, he’s watching the next 20- to 25-day window, but as the mindset shifts to new crop, he thinks bids are going to follow, and cash prices will fall.
“What we’re waiting on is does this forecast change? Do we start to see some better weather as the calendar flips to August? Or are we really putting the hurt on this thing? And if we are, I think we’re going to know pretty quickly,” says Cronin. “This crop can’t handle the kind of forecast that we’re seeing now for a month. So, I think the market is going to show its hand in the next probably 20 days, but we have to realize the proximity to new crop is not as far away as it might seem driving through the Corn Belt today.”
Keep updated on the latest forecasts and weather-related news.
