Markets Now with Tyne Morgan: Is Explosive Market Action a Hint of Extreme Volatility Yet to Come?

Commodity markets continued its explosive run this week. The July corn contract ended the week more than 58 cents higher and soybeans ended the week nearly $1 higher. As corn and soybeans continued to make new contract highs, the volatility may be here to stay, especially has the money flow continues to pour into commodities.

“We have a story in the grain and oil seeds, whereas the story is kind of getting tired in the equities,” says Arlan Suderman of StoneX Group. “The energy market is kind of hitting a limit right now because our third largest consumer of energy, India, has rapidly rising COVID numbers and is in lockdown. And so that leaves the agricultural commodities, the grain and oilseed, a lot of money's funneling now that the story is still supportive.”

Suderman says the story in grains all revolves around a fundamental story that’s playing out.

“The response by the markets is probably bigger for late April than what we normally would see because of these other factors,” says Suderman.

Domestic Demand Gains Steam

Darren Frye of Water Street Solutions says the domestic demand story is also providing fuel to the markets. He thinks strong basis and demand is part of what helped drive the markets higher this week.

“In the domestic markets, we've seen whether it's the crushers on the bean side or the ethanol grinders or people that needed to originate for export, we're seeing great domestic demand and we've seen that reflected in the basis levels of what people are willing to pay,” says Frye. “We've seen bids at $1.20 over on beans and 60 to 70 cents over on corn. So, domestically things are on fire.”

Frye says there’s no question that supplies are running tight, which is also adding momentum to the market.

“On corn, we're approaching 85% sold here for farmer percentages, and there just isn't the natural seller above the market,” says Frye.

Next Stop $7 Corn and $16 Soybeans?

Corn prices and soybean prices blew past the $6 and $15 prices levels. So, could farmers see $7 corn and $16 soybeans next? Frye says it’s a real possibility, especially considering how quickly corn blew past the $6 mark this week.

“Our models show the next targets are projecting that $6.80 to $6.70 area, at a minimum, and then we'd have still a down sequence and then a wave higher into summer when weather premium might get pumped in,” says Frye. “So, I think that's the minimum we're looking at. And new crop corn is really lighting it up in corn. I mean, you're going vertical here ever since the $4.50 levels. So, you know, we could go higher than what we thought and faster than what we thought.”

As the market raced higher this week, traders and analysts say the market action felt more like something that would play out in peak weather market months during the summer, not April.

“When you've got a lot of money at stake, they want to get in early, and that tends to start things early,” says Suderman. “The keys to watch fundamentally, since the money's there as long as there's a fundamental story and then it's not, include the strong demand from China.  As long as weekly shipments remain strong, that’s supportive. Number two is Safrinha corn crop in Brazil, where it's been very dry, especially in the southern half of the Belt, and the rainy season looks to be ending on schedule and not extending.

Production Problems in South America 

Suderman says StoneX partners with Commodity Weather Group, which estimates a possible drop in production of the Safina crop of 16 to 17 million metric tons.

“So, that could raise export demand by 400, 500 or even 600 million bushels,” says Suderman. “I don't think we're going to increase, because I think we're going to see a bigger shift toward wheat feeding overseas and in the United States. It's going to take a while for the USDA to acknowledge that though further tightening the balance sheets, and then we get into the Midwest weather with some of the risks that are inherent for the coming growing season west of the Mississippi River.”