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Market Commentary for 6/3/22
- July corn closed the week down 50 cents
- December corn closed the week down 40 cents and is down 75 cents from the high about one month ago
- November soybeans closed the week down only 17 cents from its highest close of the year
- July wheat collapsed a $1.17 and is down $2.37 from the high two weeks ago
Soybeans
Soybeans seem to be the only bright spot, as strong bean export demand continues. For the next 8 months, the US will be the only major source of beans for the world to buy from. Plus, weather has favored planting more corn acres throughout most of the US this spring, so there could be fewer bean acres in the June 30th plantings report as well.
Ukraine
The corn and wheat markets are being affected by speculation that Russia may let grain in Ukraine be exported for humanitarian purposes. On June 10th a delegation from Turkey will be in Moscow trying to negotiate a deal everyone can agree on. The potential of a deal has the market on edge. If the deal falls apart, the market will rally, but if a deal is brokered there is more downside risk.
USDA Report
On June 10th the USDA will release another monthly supply and demand report. While the June report is not usually a major market mover, the trade will be watching export demand. Any increase will likely send the market higher, and any decrease will likely pressure the market lower.
Corn Futures vs Basis
The corn futures decrease this week seems to be caused by funds exiting the market due to technical signals. It seems farmers held firm with little to no additional cash sales, hence the basis market increases throughout the US. The increase this past week was one of the largest weekly gains for basis ever. In the western 2/3 of the corn belt basis rallied over 20 cents while the eastern 1/3 went up more than 10 cents.
Basis rallies usually mean the market is not getting the grain it needs, so end users need to drive basis higher to incentivize farmers to sell and move their grain. A basis rally this significant should usually indicate a futures rally is coming. However, during strong basis rallies spreads between nearby futures contracts usually also increase, but the opposite happened this past week.
A possible reason for the large basis rally could be end users’ logistics are messed up. Railroads seem to be running behind, so more trucks are being used to supply traditional rail customers with product. This means fewer trucks are available, especially for those that can haul product from non-rail customers to other non-rail end users. Therefore, some of the basis appreciation this week could be a way for end users to pay massive premiums to incentivize farmers to use their trucks to alleviate commercial freight shortages.
Bottomline:
The July corn board has pulled back over $1 per bushel from its highest point of $8.24 on April 30th to $7.20 on June 1st. Last year July corn pulled back $1.33 per bushel from its highest tick on May 7th to its low on May 25th. July corn futures then eventually rallied and exceeded the May 7th high on June 30th.
The corn crop is neither made nor lost during the first half of June. While the basis market suggests futures are currently undervalued, Friday of this week will be a crucial day for the market with both the USDA June report and the Black Sea negotiations taking place.
Want to read more by Jon Scheve? Check out recent articles:
Are Corn And Wheat Overvalued?
Are Beans Trying To Buy Acres Away From Corn?
Do Market Conditions Warrant $8 Old Crop Corn And $7.50 New Crop Corn?
Are The Highs In? War And Weather Make Predicting Difficult.
Will Corn Go To $10 This Summer Or Hit $5 By This Fall?
Corn Prices Continue To Trend Higher, But Can It Continue?
Will Corn Be Worth $7 This Fall? Can Beans Remain Above $14?
Jon Scheve
Superior Feed Ingredients, LLC
