Commodity prices continued to race higher on Thursday, with corn trading the limit higher. Soybeans and wheat also saw prices surge higher with double-digit moves. Arlan Suderman, StoneX Group, says there are several factors fueling the markets, but one stands out.
“M2 money supplies are up $4.3 trillion since the beginning of the pandemic; we know much of that money has made its way back into the markets and is available, is seeking a home, seeking the best story, if you will,” says Suderman. “The equity market is slowing momentum. The energy market now is facing fears that the third-largest user of energy, India, has rapidly rising COVID numbers and is going into lockdown. And that really leaves the grain and oilseed market as the most attractive avenue. And yes, they do have a fundamental story.”
Darren Frye, Water Street Solutions, says the fundamental story is evident, as demand from China continues to show strength, and weather issues continue to pop up in South America.
“I can’t say enough about how strong the fundamentals have been, and they’re growing,” says Frye. “Now we see the spreads reacting. We see basis reacting. We see markets just tightening down on their available supplies.”
Soybean prices made contract highs earlier this week, topping $15 for old crop. But with consecutive days of double-digit price moves, are $16 soybeans next? Frye says it’s possible, as is $7 for old crop corn. And, he says the story is also friendly for new crop.
“If you take a look at what’s going on fundamentally, both domestically and then abroad, and then you take a look at what the charts are pointing at, things are in alignment,” adds Frye. “We could see this market easily go to the next targets. And those targets are really around that $7 area in old crop and around $5.60 in December corn, which we’re almost there. And then, $6 is the next target in new crop corn.”
“The fundamentals would certainly be supportive,” says Suderman. “And it gets very easy to start getting bullish looking at the fundamentals. And I agree with that, but I’d be foolish to say there’s no downside risk. Because we’ve seen over the past year, how quickly a single headline can change things.”
Suderman says from increased COVID cases in countries like India, to tensions between Russia and Ukraine, with an estimated 120,000 troops lined up on the Ukrainian border, there are several factors that could also drive commodity prices lower.
“We need a word of caution thrown in here, because once these markets do stop, if you get a different ingredient in there for fundamentals, they can tip over and they can go back down pretty quickly,” says Frye. “So right now, I’m looking up. But I’m being cautious here about when maybe that timing is right to make some more sales.”
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