For the week July corn was 4¼¢ lower, December corn fell 5¾¢, July soybeans lost 21¢, November soybeans dropped 15¼¢, July soybean meal lost 90¢ per short ton, July bean oil fell 151 points. July Chicago wheat lost 4¢, July Kansas City wheat dropped 4¢, while July Minneapolis wheat was up 3¼¢. December cotton lost 264 points.
Despite being lower for the week, the grains all closed higher on Friday and may have been adding some risk premium.
Jerry Gulke, president of the Gulke Group, says that risk is coming from a couple areas including geopolitical concerns in the Middle East.
Israel launched an attack on Iran Thursday night, which sent the stock market tumbling and the crude oil and grain markets higher.
The grain and crude oil markets backed off early morning but then closed with strong grains heading into the weekend.
“There is some thought that a war would be positive for the commodities,” Gulke says.
Wheat even held last week’s lows overnight and bounced off those levels to produce a nice rally according to Gulke.
He also thinks the grain markets are starting to add a bit of weather premium.
“The grain markets didn’t have any weather premium at all, but this week we might be seeing some,” Gulke says. “We’re wet, we got 4" to 5" or more of rain in northern Illinois, and it’s cold; it was 32°F this morning, and it’s going to be that way again Friday and Saturday night as well.”
The forecast doesn’t look conducive for planting, and it will take a warmup into the 70s, according to Gulke, to get back in the field.
He says that isn’t in the cards for the seven-to-10-day forecast.
“My thoughts of planting early this year are out the window,” he says.
In fact, the weather could be leaning toward some delays, and Gulke thinks the market might be getting concerned with that.
He says there is some risk premium being built into the corn market with the pest problems in the crop in Argentina. The exchanges have cut the crop by around 6.5 million metric tons as a result. Plus, the soybean meal market might also be watching the slow soybean harvest in Argentina. Areas there have had too much rain, which could also lead to some quality concerns.
“There are already discrepancies between USDA and Conab on the South American crop size, but I think there is some more uncertainty transpiring about that the crop isn’t that good. There is also some hotter weather in the forecast a month from now when the corn crop is filling,” he says.
Gulke says the top in corn has come in May in past years and in June in the soybeans.
“So maybe we can get some risk premium built in,” he says. “Although, $4.80 looks like a resistance area in the corn, if we close over $4.80 we could see follow through buying. There is a head and shoulders bottom being formed in the corn.”
Technically, corn has been sideways, but soybeans bounced off of support near contract low areas on Friday, which Gulke says was encouraging.
However, he’s been disappointed with the soybean oil market, which was down 151 points for the week and made new lows.
“All we heard is how are we going to get rid of all this meal with the ramp up in soy processing for renewable fuels, you have to be short the meal and long the bean oil,” he says. “Yet, we aren’t moving the soybean oil into the biofuels as fast as we thought so we’re building a supply there. We are also exporting meal waiting for Argentina’s crop to come online.”
The volatility in the stock market continued this week and does influence the money flow in the grain markets. Gulke is expecting a larger correction ahead.
“The easy play was you buy the dips; you get a 1% set back and you bought it, and it went higher and higher,” he says. “When that doesn’t work anymore some of the algorithm guys or the computer traders switch their tone and go the other way. It could get ugly if the right conditions come into place.”
For more information contact Jerry at info@gulkegroup.com.
