The grain markets choked and threw up July 8. Call it a technical correction. Call it a reaction to recent acreage estimates by Uncle Sugar. Call it a glitch after a “lame duck” session July 5.
Grain prices were sharply lower on Monday, and you have your choice of why that is.
One idea is that the market can never be predictable after a day off in the week. The Independence Day holiday July 4 interrupted trading before trading resumed July 5. The holiday meant that a lot of traders took a four-day holiday, so markets might have acted strange. We might have had short covering July 3, and then anything could happen July 5 and July 8.
“Technical correction” is writer speak for “I have no clue. Blame it on chart readers.” Most writers only talk about technical corrections, which really happen, when they don’t have any fundamentals to talk about when blame is calculated.
Fundamental reasons
Most likely, we do have fundamental reasons for lower prices, whether they are valid or not. For the last few weeks, I have been trying to analyze market reactions to recent end-of-June, U.S. Department of Agriculture acreage reports.
The shocking figure we got June 28 was that we planted 91.473 million acres of corn. That was 1.2 million more than the average trade pre-report estimate and shocked the market.
So far, we had been talking up weather problems in the Corn Belt that were probably reducing yield. The Northern Corn Belt was too wet. The Central Corn Belt was too dry. The market seemed to be ignoring the weather. Then came the increased acres, and traders decided the increased acres more than made up for any reduced yields.
This is the thinking that gave us a 17-1/2-cent drop in September corn futures. It gave us 16 1/2 cents of drop in December corn futures. We lost 30 1/2 cents in November corn futures. September wheat futures were off 20 1/4 cents.
Not adding up
Some of this maybe makes sense. I can rationalize the corn. But, the soybean drop does not make sense based on acres, since the increase in corn acres came out of soybean acres. By that reasoning, if corn went down, beans should have rallied.
The wheat is not even connected because it is in harvest. There the talk is that yields are better than expected. Offsetting that in trader minds, but not in prices, is the fact that Russia, the world’s biggest wheat exporter, has a bad drought that is limiting exports.
So, taken together, we are still back to the idea that the market wants to bet on lower prices, proven by commitment of traders reports that show the spec funds getting more shorts with every day’s trade.
Either the shorts are weighing on the market, or the acreage is blowing away any other concerns right now. Of course, that still doesn’t explain what is going on in soybeans. Okay, must be a technical correction!
Renewable to sustainable
Most interesting news for the day goes to Farm Progress, with an article on plants switching from renewable diesel to Sustainable Aviation Gas. Valero, Phillips 66 and Calumet Specialty Products are all retrofitting plants for this product. This is the fuel of the future for aviation in terms of reducing CO2 in the atmosphere.
Interestingly, the companies seem to be betting on the come since projections for profits cite just a breakeven. This may be more of anticipating a need that eventually generates profits, or it may be that they already have the investment in the plants and the renewable diesel has been a loser.
Trends
Looking at the price trends, we see that September corn futures were trading in the overnight July 8 at $3.93 1/2, up just a quarter of a cent. This is a significant break, since it gets corn below that round number of $4, a real loser with today’s cost of production.
The recent high was May 14, at $4.84 1/2, so we have had a 91-cent loss. The recent low before yesterday was $4.45 June 6. By June 14, we hit $4.65 1/2, a nice quick bounce, but the break below $4 we are seeing now is ugly.
November soybeans are now trading at $10.93 1/2, down six cents on the day so far in the overnight session. The recent high was May 7 at $12.30 1/2, so we are $1.37 below that. The recent low was made July 8 at $10.94 1/4, so we have barely moved above the low.
September Chicago wheat futures have had the biggest break. We are now at $5.74, up 3 1/2 on the day so far. The recent high was May 28, at $7.39 1/4. This is a break of $1.64 1/4. It could be worse. We have recovered from the recent low of $5.56 3/4 June 26.
A lot of talk right now centers on reasons we can rally yet this summer. Some think we are seeing the lows, but one article I read recently reminds us that rallies after July 4 normally only come because of severe drought. We don’t have that forecast.
Indeed, much of the Eastern Corn Belt will be getting big rains off the current hurricane that is just leaving Texas and has been downgraded to a tropical storm.
