About 14 months ago we visited the wheat outlook, and I questioned if wheat could succumb to a total reset, it could happen to any commodity. At that time, based on the leading futures contract, corn was trading near $6.50, soybeans were at $15.50 and Chicago wheat was $7.50. In early 2023 the monthly corn chart showed a long-term risk of $4.50.
As this goes to press, current prices have Chicago wheat at $6.40, reflecting nearly a dollar rally since March 1, but still a far cry from the $13 high in March 2022. May corn is trading at $4.57 finally blowing through the proverbial $4.40 resistance but still down from $8 also of March 2022. Soybeans caught fire on concerns over South America crops, and rallied 90 cents the first four trading days of May.
Did Grains Get Cheap Enough?
If the function of inflation fighting is to reset our economy to more normal, agriculture has paid it dues. Certainly as the price chart below from the Federal Reserve presentation at the 2024 Top Producer Summit shows, the best we could see for 2024 would be a minor profit (soybeans) or a slight loss (corn). Breakeven was the catch phrase that caught my attention.
I made some last-minute changes to my planting mix — pushing more corn to soybeans. I figured why spend $350 more to plant corn to only breakeven? In addition, South America equals or exceeds the U.S. in exports of corn/beans, and at competitive prices as the cash and freight chart (below) shows.
The good news is if they have a bad crop, I benefit price wise. The opposite is true as well, so due diligence and having great info is as important to marketing as the type of seed I plant or what color my machinery is. The only green thing I am concerned about is the cash left in my pocket. As this goes to press soybeans have had a 50 cent rally in new crop ($30/acre). So far it’s a good decision!
Short-Term Outlook
After the three year hiatus of down markets, grains have turned positive at least in the short-term, which is the first element of turning long-term positive.
• Corn is still competitive, and concerns rise for Argentina’s crop being 10 mmt less than the lofty estimates of 60 mmt. The U.S. crop is key; every million acres increased or decreased changes production by 180 million bushels plus or minus. Flooding in Argentina and delayed crops in the U.S. have corn excited as we go to press rallying 22 cents, following soybeans.
• Soybeans feel heavy. Brazilian basis has narrowed but is still more competitive than in the U.S. As China’s economy falters, keep an eye out for purchases from any supplier. Soymeal was touted as an oversupply problem but posted a turnaround in April. Was it due to past problems in Argentina or a precursor of improved demand? The dollar rally in soybeans in early April suggests the market caught on.
• Wheat had a big rally since March 1 and is overbought. A setback can be expected with a continued uptick a surprise. Over the past couple of decades, global production varied from low to high by 130 mmt. Neither Russia nor the European Union have a good crop every year.
Technical analysis is often the first indication of a change coming.
